(By Kent Moors, Ph.D.) With natural gas hovering at about the breakeven point for new field development – and with a glut continuing to weigh down prices in the U.S. market – this would hardly seem to be the place to look for investment opportunities.

During the next six months, however, these circumstances will begin to change.  And with those changes will come one of the biggest new opportunities in the U.S. energy sector.
There will be two key factors to this shift:

• First, gas demand is returning. And that increased demand will be accompanied by a renewed interest in drilling. Residential use is now matching volumes seen prior to last year's financial shock and power production is actually above pre-crisis levels. It is industrial demand that languishes, continuing to reflect the sluggish recovery as a whole. Yet even here are signs that demand is awakening. Demand had experienced a year-over-year decline of 11% in August. By the end of October, however, that decline will have narrowed to 6% or less.
• Second, production from conventional (or freestanding) gas fields in both the United States and Canada is declining. That means domestic volume will turn to unconventional sources. And leading the list is shale gas. Until about 10 years ago, it was too expensive to extract. But a technology that moves large volumes of water under high pressure – called a "frac" – and horizontal drilling have made shale the up-and-coming domestic gas source.

The Massive Marcellus

While there are several U.S. shale plays now producing – most noticeably the Barnett Shale Field surrounding Fort Worth, Texas – attention is already fixed on The Marcellus. Forming a huge "C" beginning in south central New York, extending across central and western Pennsylvania and ending in West Virginia, this may be the mother lode.  The operating companies think so and have been moving in for more than a year. About 60% of the production is probably coming from Pennsylvania. 

Fewer than 350 wells have been drilled, but pay zones tend to be larger, pressure higher and recoverable volume greater than projected. That means the initial estimate of 50 trillion cubic feet (cf) of recoverable gas (out of the more than 500 trillion thought to be there) could well be low.